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Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation

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  • Schivardi, Fabiano
  • Torrini, Roberto

Abstract

We study the effects of the more stringent employment protection legislation (EPL) that applies in Italy to firms with over 15 employees. We consider firms' propensity to grow when close to that threshold and changes in employment policies when they pass it. Using a comprehensive matched employer-employees dataset, we find that the probability of firms' growth is reduced by around 2 percentage points near the threshold. Using the stochastic transition matrix for firm size, we compute the long-run effects of EPL on the size distribution, finding that they are quantitatively modest. We also find that, contrary to the implications of more stringent firing restrictions, workers in firms just above the threshold have on average less stable employment relations than those just below it. We document that this is because firms above the threshold make greater use of flexible employment contracts, arguably to circumvent the stricter regulation on open-end contracts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5303.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5303

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Keywords: employment policies; firing costs; firm size distribution; matched data;

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References

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  1. Pietro Garibaldi & Lia Pacelli & Andrea Borgarello, 2003. "Employment Protection Legislation and the Size of Firms," Working Papers 247, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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  15. David H. Autor & John J. Donohue & Stewart J. Schwab, 2004. "The Employment Consequences of Wrongful-Discharge Laws: Large, Small, or None at All?," American Economic Review, American Economic Association, vol. 94(2), pages 440-446, May.
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  17. Alison L Booth & Juan J. Dolado & Jeff Frank, 2002. "Symposium On Temporary Work Introduction," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(480), pages F181-F188, June.
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  19. Verick, Sher, 2004. "Threshold Effects of Dismissal Protection Legislation in Germany," IZA Discussion Papers 991, Institute for the Study of Labor (IZA).
  20. Kugler, Adriana & Pica, Giovanni, 2003. "The effects of employment protection and product market regulations on the Italian labor market," Discussion Paper Series In Economics And Econometrics 0310, Economics Division, School of Social Sciences, University of Southampton.
  21. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  22. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by brumley in British Politics and Policy at LSE on 2012-05-28 13:40:02
  2. It is time to move away from policy witchcraft and into an era where evidence is taken seriously
    by Blog Admin in Impact of Social Sciences on 2012-05-29 10:00:44
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